The Regional Greenhouse Gas Initiative (RGGI)

Transcription

1 The Regional Greenhouse Gas Initiative (RGGI) Air and Radiation Management Administration Climate Change Division May 27, 2016

2 Basics Maryland officially became the 10 th member of RGGI on April 20, 2007 RGGI is a regional cap and invest program focused on reducing carbon dioxide (CO 2 ) emissions from power plants Cooperative 9 state effort Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, Rhode Island, Vermont New Jersey was originally a member but left the program Not your typical cap and invest program CO 2 reductions achieved by reduced demand, not scrubbers or other end-of-the-pipe pollution control technologies RGGI reductions to be achieved by Setting a cap for the region Auctioning allowances Using auction proceeds to create incentives for energy efficiency and reduced demand Will result in a small, but positive benefit to Maryland electricity consumers

3 Original RGGI Goals Original RGGI goal was to show that a cap and invest program for CO 2 was possible Modest reduction goal Proactive concept to provide revenue for energy efficiency programs and to cover cost of program through sale of allowances Generation-based Program Each state apportionment set at average emissions 10% Reduction Goal Offset growth in emissions and make a small reduction

4 Auctions Primary and Secondary market auction platform Participation in all 31 quarterly auctions to date Total amount of proceeds from RGGI auctions more than $2.45 billion $505.8 million for Maryland Strategic Energy Investment Fund (SEIF) Cost Containment Reserve Auction 32 to be held on June 1, 2016

5 Auction Design Principles Fair, transparent, and understandable to participants and the public Promotes accurate price discovery Where price reflects a measure of marginal cost to reduce emissions Guards against collusion and/or market manipulation Minimizes price volatility Promotes a liquid allowance market

6 Cost Containment Reserve (CCR) The CCR allowances will be sold at any auction if demand for allowances causes prices to be above the CCR trigger price and exceeds the supply of non-ccr allowances, until all CCR allowances available for the year are sold CCR allowances will only be sold at or above the CCR trigger prices of $8 in 2016, $10 in 2017, and adjusted up 2.5% in each calendar year thereafter The CCR allowances will be in addition to the cap and be fully fungible A fixed annual quantity of 10 million CCR allowances after 2014

7 Offsets An offset project may compensate for a fraction of the required emission reductions from a CO 2 budget source Very strict eligibility criteria

8 Offset Categories Landfill Methane Capture and Destruction Reduction in Emissions of Sulfur Hexafluoride (SF 6 ) Sequestration of Carbon due to U.S. Forest Projects Reduction or Avoidance of CO 2 Emissions from Natural Gas, Oil, or Propane End-Use Combustion due to End-Use Energy Efficiency Avoided Methane Emissions from Agricultural Manure Management Operations

9 2010/2012 Review 2010 review required by COMAR E Contract with Regional Economic Studies Institute (RESI) to conduct review Reviewed auctions, auction prices, electricity generation in MD, set-aside accounts, COATS, and an overall impact analysis Draft delivered August 1, review required by RGGI MOU Required a review of all components of the RGGI program Determined that a future program review would occur no later than 2016

10 2012 Program Review RGGI Emissions (million tons) Model Rule Announced New Cap Effec;ve Emissions Original Cap Revised 91 Cap

11 Reasons for Review RGGI was the first cap and invest CO 2 program in the nation, a good state that can be made better Analyses indicated that proposed changes would: Preserve significant reductions that have already occurred in power sector CO 2 emissions, and drive further reductions 91 cap projected to generate: ~80 90 million tons of cumulative emission reductions by 2020 ~14 20 million tons less of annual emissions in 2020 Result in a modest increase in allowance prices ~$4 ($2010) per allowance in 2014 ~$10 ($2010) per allowance in 2020 Have minimal net impact to consumer s electricity bills Average electricity bill for MD residential, commercial, and industrial customers projected to increase by less than 1% Generate an additional $2.67 billion ($2010) regionally for reinvestment into energy efficiency (through 2040)

12 2016 Review 2016 Program Review will follow the same format as the 2012 Program Review On behalf of the RGGI states, RGGI, Inc. will facilitate public stakeholder meetings to gather stakeholder input for the states 2016 Program Review 2016 Program Review will solicit stakeholder input on RGGI program design elements, including considerations for compliance under the EPA Clean Power Plan RGGI states may also hold state-specific stakeholder meetings RGGI states will engage in routine private conferences to review and reach a consensus on any changes to the RGGI program A review of all components of the RGGI program will occur

13 RGGI Stakeholder Meetings November 17, 2015 New York, NY February 2, 2016 Wilmington, DE April 29, 2016 Boston, MA June 17, 2016 Webinar

14 Strategic Energy Investment Fund (SEIF) Maryland Legislature granted administration of the Maryland RGGI revenues to the Maryland Energy Administration Revenues are deposited in SEIF Maryland Legislature apportioned the revenue to a number of different uses Low income bill payment Low and moderate income energy efficiency Rate payer relief Renewable energy and climate programs Administration of the program

15 CPP Summary The Clean Power Plan will: Reduce carbon pollution from existing power plants, for which there are currently no national limits. Maintain an affordable, reliable energy system. By 2030, reduce nationwide carbon dioxide (CO 2 ) emissions, from the power sector by approximately 30% from 2005 levels. Significant reductions begin by Cut hundreds of thousands of tons of harmful particle pollution, sulfur dioxide and nitrogen oxides as a co-benefit. Provide important health protections to the most vulnerable, such as children and older Americans. Lead to health and climate benefits worth an estimated $55 billion to $93 billion in From soot and smog reductions alone, for every dollar invested through the Clean Power Plan American families will see up to $7 in health benefits.

16 Maryland s Plan Maryland will use the Regional Greenhouse Gas Initiative (RGGI) as a compliance pathway. The RGGI states are working together because the RGGI Cap is mass-based. So a translation from rate-based standard to a mass cap will have to be completed. This requires modeling. Maryland is coordinating with Delaware, since we are the only two RGGI PJM states and the only EPA Region III RGGI States.

17 Next Steps Information on the Clean Power Plan can be found at the EPA website: On February 9, 2016, the Supreme Court stayed implementation of the Clean Power Plan pending judicial review. For the states that choose to continue to work to cut carbon pollution from power plants and seek EPA s guidance and assistance, EPA will continue to provide tools and support. The D.C. Court of Appeals for the District of Columbia Circuit announced that the full court will hear arguments on the EPA s Clean Power Plan, rather than a panel of three judges a practice known as sitting en banc. The hearing date for the regulatory package has been pushed back from June 2 to September 27.

18 Why we need Energy Market Modeling To analyze a complex system (like an energy market) in an understandable form To organize large amounts of data; and To provide a framework to test hypotheses The goal is to develop a projection of market energy, allowance and fuel prices to inform decisions Power plants can be operating way into the future making assumptions is a requirement The Integrated Planning Model (IPM) model is our tool of choice

19 The IPM Model A cost simulation model focused on analyzing wholesale power markets and assessing environmental compliance and competitive market prices Includes existing and planned units, coal and gas markets, environmental compliance and allowance prices, operating constraints, etc Estimates generation, new power plant construction, fuel consumption, and inter-regional transmission flows Determines the least-cost means of meeting the environmental regulatory requirements and forecasts allowance prices for each cap and trade market and compliance costs, unit dispatch, and retrofit decisions

20 2016 RGGI Program Review: Modeling Approach Two Reference Cases RGGI as-is without Clean Power Plan with RGGI and Clean Power Plan (CPP) in Effect Potential Policy Runs Based on Stakeholder Comments

21 What is a Reference Case? The first set of runs completed by the RGGI states for the 2016 Program Review are known as the Reference Case runs These runs are designed to show how similar or different the model outputs (such as capacity or generation emissions, or allowance prices, or electricity cost) would be without doing anything different than the current suite of policies. The Policy Scenario Runs (discussed in the next section by Chris Hoagland) have the same input assumptions, but change the RGGI policy, so show how changes in RGGI could cause changes in the electricity sector

22 2016 RGGI Program Review: two reference cases For the 2016 Program Review, the RGGI states developed two reference cases: 2016 Program Review Reference Case Clean Power Plan (CPP) Nationally Case The CPP Nationally Reference Case assumes that: EPA Clean Power Plan is implemented in states outside of RGGI incorporates nationwide CPP requirements for non-rggi states the 2020 RGGI cap and other program components (CCR and offsets) is extended flat to the end of the modeling time horizon. Inputs/Assumptions that impact what happens in other states under CPP Rate vs Mass based assume mass-based Trading vs single state programs assume trading Consider PJM effects separately from the rest of the country Question: What should we consider as the reference case for what happens to RGGI with CPP in effect around us?

23 Scenarios Program Review (PR) Reference CPP Reference Model Run 1 (MR1) Changes to RGGI X X ü (minor) Clean Power Plan X ü ü

24 Assumptions Assump7on Program Review (PR) Reference Case CPP Na7onally (CPP) Reference Case RGGI Cap RGGI Cost Containment Reserve (CCR) RGGI Offsets RGGI Trading 2020 cap extended through end of modeling horizon 10 million tons available in each year with trigger price rising at 2.5% annually through end of modeling horizon Offsets allowed for up to 3.3% of compliance through end of modeling horizon at $25/ton Trading of RGGI allowances among RGGI states Clean Power Plan Caps Clean Power Plan Trading None None Reduced aser 2025 in Model Run 1 States outside of RGGI subject to mass caps covering exis;ng and new units Trading among all states outside of RGGI

25 Capacity Changes RGGI Region Capacity Changes (MW) 30,000 25,000 20,000 15,000 10,000 5,000 0 (5,000) (10,000) Addi;on Re;rement Renewable: Biomass Renewable: Solar Renewable: Wind Renewable: Hydro Gas: CT Gas: CC Natural Gas Other Steam Coal Nuclear (15,000) PR Ref CPP Ref MR1 PR Ref CPP Ref MR1

26 Generation Mix RGGI Region Genera;on (GWh) 450, , , , , , , Net Imports Biomass and Other Solar Wind Hydro Gas CT Gas CC Other Steam 100,000 50,000 Coal Nuclear 0 PR Ref CPP Ref MR1 PR Ref CPP Ref MR1

27 Emissions RGGI Region Emissions (Million Tons CO2) Historic Projected Emissions over the cap from banked allowances Clean Power Plan Emissions over the cap from Cost Containment Reserve (CCR) Historic PR Ref CPP Ref MR1 RGGI Cap

28 Allowance Prices CCR Triggered 2012$/Ton PR Ref 4 CPP Ref 2 MR1 CCR Trigger

29 What Caps Should We Consider? RGGI Emissions (Million tons) ?? RGGI Cap RGGI Emissions CPP Goals

30 Commenting to RGGI RGGI, Inc. accepts comments by at: RGGI, Inc. publishes Meeting Notices and Modeling Results at:

31 Questions?